Operators condemn Budget as VAT calls go unanswered

Speaking in the House of Commons on Wednesday 28 October, Chancellor John Healey announced the national living wage and national minimum wage would rise by 3.9% from April 2027, while alcohol duty will increase in line with inflation from February.

The Budget also included £10m in additional annual duty relief for small alcohol producers, alongside changes to business rates relief for qualifying properties in England.

However, operators told The Morning Advertiser (The MA) the measures failed to address the wider tax burden facing the sector, warning of further closures and job losses.

Queen of Cups chef-owner, Ayesha Kalaji, said the Government failed to listen to repeated calls for VAT reform, despite more than 400,000 people signing the #VatsTheProblem petition.

She told The MA the business rates measures were “not what we asked for” and would not “turn the tide” of closures and job losses facing hospitality.

“This is simply not enough to save our haemorrhaging industry,” Kalaji added.

Meanwhile, Michelin-starred chef and restaurateur Tommy Banks described the Budget as “incredibly frustrating”, adding the Government delivered little to change the pressures facing businesses.

He said many operators were as busy as ever but struggled to make their business models sustainable because of taxation and rising costs.

“When you can fill your restaurant and still struggle to make it pay, surely that tells the Government something is seriously wrong,” he told The MA.

Enormous frustration

Banks also warned increasing employment costs while maintaining high taxes on employing people would make recruitment and job creation harder.

“Our teams deserve to be paid properly,” he continued.

“But you cannot keep increasing the cost of employment and expect businesses to keep creating jobs.

“The frustration across hospitality is enormous and the campaigning will go up a level. There is no way this industry will go quietly.”

Barons Pub Company managing director and British Institute of Innkeeping (BII) chair Clive Price shared Banks’ frustration.

He said positive messaging from the Prime Minister and Chancellor ahead of the Budget had raised expectations, but the measures announced would increase costs without enough support to offset them.

“After two years of gaslighting from Starmer and Reeves this is disappointing. They keep telling us they are helping us while continuing to put up our costs,” he told The MA.

Price described the minimum wage increase as “an enormous blow”, adding that, given the lobbying, consultations and meetings with ministers, he could “hardly believe the lack of action”.

He said a hospitality VAT cut was an obvious way to address the sector’s difficulties and argued hospitality could help tackle youth unemployment, something the Government failed to recognise.

“We have to be allowed to make a profit, but a tax burden of 40p in the pound makes this almost impossible,” he said.

Similarly, Shaun McManus, licensee at Teal Farm, Washington, stressed that wage rises impact licensees.

“Tommy Banks said it tonight: you can run a busy pub and still lose money. VAT stays at 20%, the living wage goes up to £13.21 in April, and the rates relief only helps whoever’s name is on the rates bill.

But there’s a whole group of us nobody is talking about. Everyone’s watching how the pubcos treat their tied tenants, and the Pubs Code is there for that. Franchise and retail partner agreements aren’t covered by it at all, and there are more of them every year.

On those deals the licensee is the one employing the staff, so every penny of the wage rise comes out of their share of the takings. They don’t set the prices and they can’t pass it on. I know several landlords on these agreements who haven’t taken a wage for months, and they’re still opening the doors every day because the pub’s their life.

If the government is serious about saving pubs, it needs to look at everyone running one, not just tied tenants. Bring hospitality VAT into line with France, Spain and Italy, and make sure any help reaches the person behind the bar, not just the company that owns the building."

However, there were some green shoots. Star Pubs managing director Lawson Mounstevens welcomed the change to Small Business Rates Relief.

Though he warned higher beer duty would put further pressure on pubs and brewers and called on the Government to recognise the contribution of larger brewers.

“Heineken UK alone supports nearly 100,000 jobs and contributes £5.6bn to UK GDP. Larger brewers also need the confidence to invest.

“The Government should have used this opportunity to freeze beer duty and gone further on draught relief, to give the great British pub, and the communities they serve, some much-needed breathing space”, he continued.

Admiral Taverns chief executive Chris Jowsey also welcomed the business rates measures but warned rising beer duty and further regulation for pub companies would add to existing pressures.

He said: “Today’s announcement saw a positive first step, but there’s still no sign of the Cavalry promised by Andy Burnham and pubs continue to face onerous taxation.”

Jowsey called for a reduction in hospitality VAT and simpler planning rules to help publicans invest, urging the Government to continue working with the sector to support pubs in the long term.

Similarly, Pub People Company managing director Andy Crawford said business rates support was welcome but would make only a small dent in higher standing charges under the company’s recently agreed energy contract.

Elsewhere, Ardent Pub Group founder and managing director Dom Jacobs told The MA the higher threshold for rates relief would not benefit operators with substantial teams and investment plans.

He said increasing employment costs while asking businesses to tackle youth unemployment pulled policy in opposite directions.

Sustainable environment

Jacobs called for a hospitality VAT cut, a beer duty freeze, interest-free loans for energy-saving infrastructure and properly funded planning and licensing reform.

“The ambition should be a sector that thrives, not one that’s just surviving,” he said.

Concerns over the Budget’s impact on future investment were also raised by operator of the Dr Foster pub in Gloucester, Dorian Kirk, who said the measures had not delivered the meaningful relief businesses like his needed.

He told The MA while the pub had received more than £450,000 in investment, he was struggling to see how further investment or recruitment would become more achievable.

“Our teams deserve better pay, but we need a sustainable business environment that allows us to provide it, keep meals affordable and invest in more jobs,” he said.

JW Lees managing director William Lees-Jones described the update as “a nothing budget”, noting business rates support would help in England but not Wales.

He stressed the measures would not help hospitality or the wider on-trade, which he said was down 2% in volume despite 3% value growth, adding persistent inflationary pressure would continue to affect businesses.